SW Retail Advisors Stacey Widlitz joins Yahoo Finance’s Alexis Christoforous and Brian Sozzi to discuss how the retail industry is weathering the coronavirus outbreak.
BRIAN SOZZI: Staying on the retailers, I want to bring in Stacey Widlitz of SW Retail Advisors. Stacey, good to see you here. Macy's news to see-- it's shocking to see 100,000-- 130,000 workers on furlough. You don't see news like that very often.
Do you think Macy's survives this situation? And, if so, what does the company look like? You know, I think they want to only have 500 stores in operation. But could they have less?
STACEY WIDLITZ: So, Brian, you know, we think about this and say how long is this going to last, right? So most of the retailers have put out there this expectation that maybe mid-April they reopen. No way, like we're looking June, you know, perhaps the end of June.
If that's the case, and we're looking at, you know, two, three, four, five months of closings and then a big ramp in demand, for some of these retailers that are already teetering on the fence of extinction here, this is a massive pressure. I mean, some of them have six to eight months of cash here. So they're cutting dividends. They're cutting buybacks. And now they're putting all the employees on the sidelines to save cash.
So the biggest issue to me going forward is what happens with the tenants versus the landlord relationship. Who takes the hit if the retailers aren't paying the rent, and then the REITs have to push it to the banks? Someone needs to get involved in this relationship and figure out how do we spread out the hit. Or how can the government help impact that relationship so that these retailers that are struggling and will continue to do so survive?
ALEXIS CHRISTOFOROUS: You know, Stacey, just yesterday, we heard from Domino's Pizza, L'Oreal, Planet Fitness, all of them suspending their 2020 financial outlooks. I guess we need to get used to that, as more companies do the same.
If you were to-- to make some predictions, who doesn't survive this? I mean, is JCPenney here in two or three months? Who are-- who are some of the retailers right on the brink that you think don't come back from this?
STACEY WIDLITZ: So, you know, we've seen a lot of store closings like you were just asking, Brian, about Macy's. So, yes, I don't think they've closed enough stores, and I think this is like the push to, perhaps, you know, we see store basis cut in half for a lot of the department stores.
For some of them like a JCPenney, you know, depending on how long this lasts, you've got debt payments coming up. So this is a harder-- this is a harder path here. You also have some smaller retailers that have been trying to recover that, you know, maybe just don't make it through.
But I think the other big issue here is everybody is looking at the online business and saying, oh, well, that'll save us because it's up to 20% of revenues or whatever it is. There are so many retailers right now that are buckling under the pressure of trying to keep people moving along the online e-commerce. And they're not going to be able to do it.
So I think the next buzzword is omniclosed, not omnichannel. And that will be the real-- you know, that will be the real nail in the coffin for so many here.
BRIAN SOZZI: You know, Stacey, you and I have always talked about JCPenney, but I don't see how they survive this situation. Just looking at the stock, about $0.35, tons of debt, they pretty much tapped out their credit revolvers. How could they navigate this situation where maybe they do survive until holiday season 2021?
STACEY WIDLITZ: So I think for everybody to navigate this is you can do everything you can, which we've already seen retailers do-- dividends, buybacks, compensation, put employees on the sideline, push them toward the unemployment line. And, by the way, this is another subject that a lot aren't talking about is, for some, they will make more in unemployment than they would have made in the stores.
So, if their unemployment lasts 39 weeks, let's say we come out of the other end of this in three, four, or five months. Maybe it's harder to get workers back into the stores because they're making more on the sidelines. So there's so many moving parts here.
But I think, again, the relationship between the REITs, the malls, and the tenants, the retailers, that is going to determine a big piece of the survival. Do they have to pay rents? You know, who's-- who's going to take that hit?
BRIAN SOZZI: You know, is one of the results of this, Stacey, that the big three, Target, Walmart, and Amazon, just get even stronger? We had Target come out last week [? worn, ?] but they're seeing really mind-blowing gains in a lot of areas of their business. So is Walmart, and I suspect so is Amazon. And, if power is concentrated there, what does that mean for the mall?
STACEY WIDLITZ: Well, that's the big issue here is that it seems that the big were already getting bigger and kind of squishing the medium to smaller sized businesses. And that now the process accelerates here. And, of course, also, Target and Walmart are offering things like curbside pickup.
So you don't have to touch anybody. You don't have to go in the stores. The retailers that are way ahead in that process of social distancing by accident and, you know, for six months ago, that were way into this, those are the ones that the consumers will trust and continue to gain share here.
ALEXIS CHRISTOFOROUS: You know, this morning we got the Conference Board numbers out on consumer confidence, lowest level since mid-2017. I don't think that's a big surprise to any of us. When we do come out the other side, as you were saying, are we going to see American consumers rushing out to buy things? And we think about how many Americans won't have jobs or the income to go out and do that.
Or the other side of the coin is those Americans who are going to be fearful to go out and may want to continue to shop online. Do you think that the consumer, who really was the pillar of this economy heading into this pandemic, are they going to be there in a big way when we do come out the other side, Stacey?
STACEY WIDLITZ: So I think, you know, when we've seen crises in the past or global events, it's interesting. The consumer has a fairly short memory. On this one, I would say this is going to be different. So I think consumers are going to be very concerned, as they tip their toes back into the real-- the life of reality, on how they interact with people. So I think online-- the online adoption rate will accelerate.
But then you have to think about restaurants. So those are incredibly capital-intensive businesses with a high failure rate. And those have been exploding in the mall over the past five years as like the savior of traffic for the mall. So I think that's where you're going to see the initial really stores go dark. And that will accelerate traffic declines in the mall.
ALEXIS CHRISTOFOROUS: And, Stacey, what about what retailers are doing to keep their own workers safe? I mean, we-- we have that whole debacle with Amazon now letting go of a worker who said that he was concerned about the way they were being treated regarding the virus. And he had staged a walkout. Whole Foods workers-- Whole Foods, of course, also owned by Amazon-- perhaps staging a walkout today.
And then you've got Walmart now saying it's going to take the temperature of workers, offering them masks, offering them gloves. What's the optics [INAUDIBLE] for something like that, you know, how we the consumer are going to view the retailers that we would go to day in and day out?
STACEY WIDLITZ: So I think, you know, giving your workers all of the things that they need to protect themselves is great, but that really should have been going on since the beginning here. I talk to a lot of people in stores. I'm always out in the stores.
And what I hear from people is that they're afraid. They're really afraid because they're trying to keep their job. They're trying to keep their families fed. And they know they're putting themselves at risk.
So, you know, I think, for some of the companies who have obviously furloughed so many employees, like it's so important. And most of them have really tried their best to at least cover health insurance for-- you know, for as long as they can here, but, the stores, I think you're going to start increasingly to see people push back and say it's just not worth it for me.
BRIAN SOZZI: Stacey, it's hard to even think about this, but this time will fast approach. The holiday shopping season, it always sneaks up on us. How do you think that season will play out for retail? Obviously, a lot of orders are being placed now to supply stores for the holidays.
STACEY WIDLITZ: So what we're seeing right now is that there's an inventory impasse. So you, basically, you're writing off spring and summer here. What does that mean?
For some of the vendors that produce product, they are, literally, on a shoestring of cash flow. So maybe a lot of them are not around to produce for fall or-- or holiday here. And, if they are, maybe they're not ramping up production because there's such a huge risk.
Remember, retailers are canceling. Their expanding-- extending payment terms. Most of the vendors cannot deal with this. So I think you're going to see holiday-- even if demand comes back a bit, you're going to see a lot fewer choices on the shelves.
ALEXIS CHRISTOFOROUS: You know, Stacey, I want to read this to your attention, to our viewers attention, just breaking now. The largest US mall owner, Simon Property, is saying that it's going to furlough 30% of its workforce. Do you think that, when all is said and done, this pandemic is really going to be the death of a lot of the malls that were just sort of hanging on by the skin of their teeth to begin with?
STACEY WIDLITZ: So, if you look at the malls in the country, the B and C malls are about 28% of the total mall base in the country. So those have been at risk. And this, again, is going to accelerate the process of-- of their demise.
Simon has closed their malls. So, you know, of course, every-- everybody, the word of the week and the word of next week is furlough. You're going to see a slew of press releases coming out.
And that's what these companies need to do to survive. There's no alternative. And, again, someone needs to get involved and figure out how you go through each lease and who's going to take the hit here because someone is going to get-- you know, again, someone is going to have to take the financial fall here for the rents.
BRIAN SOZZI: All right, let's leave it there. Stacey Widlitz of SW Retail Advisors, always good to see you. Thank you.
STACEY WIDLITZ: Good to see you guys.